Catalan Government’s budget for 2014 to have a 1% deficit, more social spending and further privatisations

Barcelona (ACN).-On Tuesday the Catalan Government presented its budget proposal for 2014, which will be approved by the Catalan Parliament in the coming weeks. The proposal posts a 1% deficit, representing a 35.5% reduction on the 2013 deficit and amounting to €1.98 billion, in line with the deficit targets imposed by the Spanish Government for 2014. It prioritises healthcare, education and social policies, which will represent 71% of the total non-financial spending. Non-financial spending grows by 0.2% and reaches €20.30 billion, while the total spending amounts to €29.31 billion. The Catalan Finance Minister, Andreu Mas-Colell, explained that spending had not been reduced this year because in the last 3 years it has already dropped by 22% and budget cuts have reached their “limit”, as otherwise “social cohesion” and “the Welfare State” would “be at risk”. In 2014 the Catalan Executive will spend the same per inhabitant as it was doing in 2004 taking into account inflation, amounting to €1,901 per person. On top of this, Mas-Colell forecasts a 0.9% economic growth for 2014, leaving behind the recession of 2012 (-1.2%) and 2013 (-1.1%), with a 23.1% unemployment rate at the end of next year. With this economic context, the Catalan Executive is focusing the adjustment for 2014 on the revenue chapter, increasing revenue by €3.2 billion, mostly through new taxes (€910 million) and the sales of assets and privatisations (€2.32 billion).

The budget has not included the money owed by the Spanish Government to the Catalan Executive since 2008 (which amounts several billions depending on the items included), in order to be pragmatic and not to increase conflict with Madrid. The budget proposal has already been negotiated between the governing Centre-Right Catalan Nationalist Coalition (CiU) and the Parliament’s second largest group, the Left-Wing Catalan Independence Party (ERC), which makes its final approval very likely and without important changes. Despite supporting the budget, both CiU and ERC said that they “do not like it”, although it is “the best possible budget” in the current context. The rest of the parties significantly criticised it. Left-Wing parties focused their criticism on the numerous privatisations and sales of assets. In addition, they said they were not prioritising social policies, since they build on the past budget cuts. The Spanish nationalist parties stated the budget was “a fiction” and a tool towards the self-determination vote.

On Tuesday the Catalan Finance Minister, Andreu Mas-Colell presented the Catalan Government’s budget proposal for 2014. The proposal is very likely to be approved in its current form or with minimal changes, since it has already been negotiated between the governing CiU and the ERC, with whom they share a parliamentary stability agreement. In the budget proposal, the Catalan Government forecasts a 0.9% economic growth for 2014, leaving behind the recession of 2012 (-1.2%) and 2013 (-1.1%), with a 23.1% unemployment rate at the end of next year

A budget with total spending of €29.3 billion

The Catalan Government’s total spending for 2014 amounts to €29.31 billion (€ 29,307 million), while revenue is projected at €27.41 billion (€27,414.5 million). Therefore, Mas-Colell foresees a deficit of €1.98 billion (€1,979 million) for next year, which represents a deficit equivalent to 1% of Catalonia’s GDP, totally in line with the budget stability plan and the deficit targets imposed by the Spanish Executive for next year. This means that compared to 2013, the Catalan Government will have reduced its deficit by 35.4% in a single year, a reduction equivalent to €1.09 billion. This is added to annual deficit reductions since 2010, undertaken in a context of severe economic crisis. The Catalan Government’s non-financial spending for 2014 will amount to €20.30 billion (€20,295 million), which represents a 0.2% growth on 2013 non-financial spending.

Debts reaches 30.3% of Catalonia’s GDP but each year Catalans give away 8.5% of their GDP

By the end of 2014, the Catalan Government’s debt will amount €59.91 billion, equivalent to 30.3% of Catalonia’s GDP, taking into account all the chapters foreseen by the European Accounting System (SEC). The Catalan Executive’s debt at the end of 2012 represented 26.4% of the GDP and it will be 29.7% at the end of 2013 according to the forecasts. In 2007, before the economic crisis, Catalonia’s public debt was €20.83 billion, equivalent to 8% of its GDP. However, the Catalan Government is significantly under-budgeted compared to other Autonomous Communities in Spain, since 43% of taxes paid by Catalan citizens are spent outside Catalonia following the Spanish Government’s non-transparent fiscal redistribution scheme. In fact, studies show that Catalans have been giving away each year around 16.5 billion at least for the last 25 years, an amount that is equivalent to giving away each year 8.1% of Catalonia’s GDP as average.

The budget does not include Spanish Government’s debts in order not to increase tension

The Catalan Finance Minister also explained that the budget proposal does not include the money that the Spanish Government legally owes the Catalan Executive but is avoiding paying. There is no consensus on the amount, since the Spanish Prime Minister Rajoy recognised part of this debt when he was a candidate but now refuses to recognise it while in office. One of the amounts Rajoy recognised and that could have been included in the budget proposal are those related to the Third Additional Clause of the Catalan Statute of Autonomy (approved by the Spanish Parliament and by the Catalan People through a binding referendum) referring to an historical lack of infrastructures and setting a minimum spending share in Catalonia as a compensation. The share was never honoured in the 7 years the clause was in force. The money would now amount more than €5.7 billion, according to the Catalan Government. However, the Spanish Government’s budget for 2014 does not include paying any pending debt to Catalonia. Accordingly, the Catalan Government’s budget does not include them in order to be “pragmatic” and “realistic”, said Mas-Colell. Furthermore, by doing this, the Catalan Executive avoids increasing tension with Madrid.

On top of this, Mas-Colell also confirmed on Tuesday that he is giving up trying to make the Spanish Government change its mind about its decision not to transfer the Catalan Executive 1.7 billion this 2013, a decision announced in late October, 10 weeks before the end of the year.

Spending does not decrease and the adjustment is reached through increasing revenue

The Catalan Finance Minister emphasised that in 2014, spending does not decrease as it has been doing for the last 3 years; “on the contrary”, he added. In fact, since 2011, the Catalan Executive has reduced its spending by 22%. This year, the CiU and ERC have agreed on keeping the same spending levels as in 2013, since otherwise “social cohesion” and the Welfare State “would be at risk”, explained Mas-Colell. The Catalan Finance Minister also praised “the sacrifice” of public employees, who will continue to have their salary reduced by not receiving 1 of their 14 payments throughout the year (equivalent to a 7% annual salary reduction since 2011). Mas-Colell highlighted that the current budget has prioritised social spending, while they are committed to budget stability and meeting deficit targets. Therefore, the Catalan Finance Minister explained that the adjustment had to come by increasing revenue.

Revenue will grow by €3.23 billion, raising taxation, selling assets and privatising

Since spending will not be reduced, debt interests grow and deficit targets are stricter, the Catalan Government will increase additional revenue by €3,227.5 million, taking into account that Catalonia’s economy will grow by 0.9% in 2014. €909.5 million will come from taxes, with a higher fiscal pressure, and the remaining €2,318 million will come from selling buildings and assets as well as privatising services. Mas-Colell recognised that this path is “not sustainable” over time, but he stressed that a general change of Catalonia’s current fiscal framework would be needed to avoid it. The Catalan Finance Minister did not disclose which assets would be sold or privatised. However, he warned that this aspect of the budget will have to be reworked throughout the year, since if political negotiations with the Spanish Government show results and some debts are paid or a fairer fiscal redistribution is approved, the Catalan Government would have additional revenue and some of these privatisations would be cancelled.

Regarding the €909.5 additional millions coming from taxation, €458.2 million will come from Wealth Tax; €114.7 million would come from Catalonia’s share of the tax on hydro-carbon products (mostly petrol); €108 million from Wealth Transfer Tax; €73.5 additional million from Income Tax; and €54.2 million from Inheritance Tax, which will be reinstated for high value estates. The rest would come from minor taxes and fees, such as the Tourist Fee (€38.5 million) and the new tax on thermo-nuclear energy (€21.6 million).

Social spending reaches 71.1% of non-financial spending

Mas-Colell maintained that this year’s budget aimed to prioritise social spending, which will reach €14,232 million, 71.1% of the total non-financial spending. The Catalan Finance Minister explained that the social spending concept includes: healthcare, education, social policies, the Minimum Insertion Income (a social grant given to people without any income at all, known as PIRMI), housing grants and school-canteen grants. All these services see their spending increase, particularly the last three in order to fight social exclusion and poverty.

€8.22 billion spent in healthcare

Healthcare is always the Catalan Government’s department with the highest budget. In 2014, it will have a budget of €8,216 million (in 2013 it was €8,203 million). In 2010, the Catalan Executive was spending €9,684 million in healthcare (a 15% drop). Next year, the Catalan Government will be running 425 community health centres and 69 hospitals (including privately-owned ones receiving public funds).

€4.15 billion spent in education

Primary and Secondary education, as well as vocational training, is traditionally the second-largest spending ministry of the Catalan Executive. In 2014, €4,147 million will be spent on this chapter (in 2013 they were 4,139 million). However, compared with figures from 2012, the budget drops by €260 million and a 21% budget drop since 2010. The 2014 education budget will pay for the 68,969 teachers, the 1.5 million non-university students, the 3,275 public schools and high-schools and the 710 privately-owned schools receiving public funds.

€1.63 billion for social care

The Catalan Ministry of Social Welfare and Family will have a budget of €1,630.5 million (€1,628 million in 2013). Most of this money, €1,378 million, will pay to fund the dependency programme, which financially supports people with serious disabilities or illnesses that depend on the assistance of a third person; 93,755 people will benefit from this programme and there will be 33,000 beds in old people’s homes. In addition, €192 million will be to fight poverty, €183 million children and adolescents assistance and €61 million will be for social promotion policies (such as those specifically targeting women, youth, religious denominations, etc.). 67,950 people will receive a social grant (excluding the health dependency-related ones). The money for the Minimum Insertion Income (known as PIRMI) will be increased from €100 million in 2013 to €173 million in 2014, in order to increase the number of people who can apply for it and fight social exclusion and poverty.

€2 billion for fire-fighters, police, prisons and justice

Added to the €14.23 billion of strict social spending, the Catalan Government will also spend €2 additional billion in the Ministries of Home Affairs and Justice, which provide essential services to the citizens. The Home Affairs Ministry will have a budget of €1.1 billion, in order to pay the wages of the 17,342 Catalan Police officers and the 2,541 fire-fighters, as well as for the maintenance of the 150 fire stations, the 93 police stations, the 2,963 police vehicles and the 770 fire-fighters’ vehicles. Regarding Justice, the €845 million allocated will have to pay for the maintenance of the 21 prisons and detention centres (with some 10,000 convicts) and for the salaries of the civil servants working in those centres and in the 612 judicial bodies existing in Catalonia (excluding judges, public prosecutors and court secretaries).

€481 million in employment policies, €498 million for business loans and €443 million in research and innovation

Fostering economic activity is another priority of the Catalan Government. €195 million will be spent in sector policies, such as business development (€62.4 million), industrial policy (€9 million), retail (€36.3 million), tourism (€73.1 million), energy and mines (€6.9 million) and consumers (€7.3 million). Apart from this, €442.7 million will be spent on research, development and innovation. Employment policies will receive €480.5 million: €239.1 million for direct employment policies and €240.2 for labour equality, quality and integration, among other programmes. Finally, €541.9 million will be to support economic activity: €498.4 million will be for official loans to business and financial sector and €43.5 million will be for public investments.

€10.6 million for a self-determination vote?

Finally, the Catalan Government has included a small but significant item in its budget for 2014. €10.6 million are allocated to a vote and other citizen participation processes. Considering the independence debate and the will to organise a self-determination vote in 2014 publicly announced by the CiU and ERC, it is relevant to highlight this item. In fact, Mas-Colell was asked about it and said “any voting process will not fail because of a lack of ballot boxes”. In addition, he also stated that this item might be “enlarged” if it was required.

Political reactions

The governing CiU stated that the budget was “the best possible in a context of difficulties”. The Centre-Right Catalan Nationalist Coalition stated that the alternatives to this budget were presenting “non-credible figures” or “to block finances with greater spending”.

The ERC, which has negotiated the budget proposal and will support it, emphasised that they “do not like it” and that it is not the budget “citizens deserve”. The Left-Wing Catalan Independence Party maintained that they regard this budget as the last one of an Autonomous Catalonia within Spain. The ERC emphasised that the budget “saves the Welfare State”, despite the limitations and disloyalties of the Spanish Government.

The Catalan Socialist Party (PSC) – which is federated to the Spanish Socialist Party (PSOE) – highlighted that the budget “is one of privatisations and sales”. The PSC stated that the forecasts are “impossible to be met”, since 10% of the budget is based on sales and privatisations. In addition, they accused the ERC of “selling its [left-wing] soul” for a self-determination vote.

The People’s Party (PP) – which runs the Spanish Government – considered the budget proposal to be “a fiction” because it foresees “over-estimated” revenue sources, such as the privatisations. In addition, the PP criticised the economic recovery policies and added that the budget does not answer to Catalonia’s needs but to the will to organise a self-determination vote.

The Catalan Green Socialist and Communist Coalition (ICV-EUiA) accused the Catalan Government of being “cynical” and making “propaganda”, when it says the budget prioritises social policies. The ICV-EUiA made the criticism that with this proposal, the budget cuts implemented in 2011, 2012 and 2013 are now “structural”. In addition, they asked the Catalan Executive to increase social spending significantly rather than meet the 1% deficit target, which should not be honoured according to them.

The anti-Catalan nationalism and populist party Ciutadans (C’s) stated that the budget “hits families, SMEs, public employees, service providers”; it “totally hits Catalonia”. The C’s pointed out that in 2013 there have been “undercover budget cuts” worth €1.2 billion. Furthermore, the C’s accused the Catalan Executive of committing “accounting fraud” by stating that around €2.3 billion will come from selling assets and privatisations.

Finally, the radical left-wing and independence party CUP accused the Catalan Government of “selling the country at bargain prices” with a “massive privatisation”. “Now we understand the concept of ‘business friendly” that the Catalan Government has been using for the last few years, they said. The CUP regretted that the Catalan Executive “submits itself to the European Troika”, with a budget that is “a loyal transposition of Merkel’s impositions”.